U.S. recession unlikely before 2020, and then 'wok'
shaped
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[November 14, 2018]
By Svea Herbst-Bayliss and Megan Davies
NEW YORK (Reuters) - U.S. President Donald
Trump may just escape having to grapple with a recession before the U.S.
Presidential elections in 2020, with investors saying it is unlikely one
will occur before then.
Trump has praised the U.S. economy, which grew at 3.5 percent in the
third quarter, following a tax-cut-fueled 4.2 percent gain in the second
quarter. And even though economists see increased risks for a recession
as the Federal Reserve raises interest rates and a trade war with China
threatens the economy, such a scenario is still a few years off.
"We don't expect another recession until 2021, at the earliest," Byron
Wien, vice chairman of Blackstone Group's <BX.N> Private Wealth
Solutions Group told the Reuters Global Investment 2019 Outlook Summit
in New York on Tuesday.
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Richard Bernstein, Chief Executive of Richard Bernstein Advisors LLC and
former Merrill Lynch & Co chief investment strategist, said he did not
expect a recession or bear market before the election. "I really don’t
think there is a bear market on the horizon. I don’t see anything that
changes that."
However, some investors were less sanguine, saying a recession could
still occur in 2020 but that would likely be the earliest.
"It isn't inevitable we will get it in 2020, and if we see it in 2020 it
will probably be made in (Washington) DC," said Joachim Fels, a managing
director and global economic advisor at Pacific Investment Management
Co.
Penny Foley, portfolio manager, TCW Group Inc, thinks a recession could
occur in either 2020 or 2021 because the United States is nearing the
end of the credit cycle, U.S. growth has peaked and stimulus is rolling
off.
"Our U.S. guys would feel that it's probably a 2020 type event," Foley
said.
SLOWING GROWTH
Both Wien and Fels pointed to potential risks at a time the economic
expansion, now nine years old, is likely to slow, while corporate
earnings are also expected to taper.
One stumbling block may occur if the Federal Reserve, led by Chair
Jerome Powell, raises interest rates too quickly or aggressively as
inflation and employment have both been normalizing. Both Fels and Wien
said the Fed will almost certainly announce another rate increase in
December and at least two more in 2019.
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![](../images/111418pics/busine9.jpg)
Joachim Fels, Managing Director at PIMCO, speaks during the Reuters
Global Investment Outlook Summit in New York, U.S., November 13,
2018. REUTERS/Brendan McDermid
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"The Fed is doing the right thing," Wien said, adding that President
Donald Trump should be boasting about how well the economy is doing
instead of criticizing his top central banker for taking care to prevent
an overheating by pushing rates up.
Wien and Fels agreed that the Fed's job will be challenging in
preventing an overheating after Trump's tax cuts helped stimulate the
economy while at the same time not tightening too much to choke off
growth when the expansion really begins slowing in two to three years.
Meanwhile, trade wars are seen as a danger, both men said, noting that
tariffs, including a fresh round on Chinese goods, are bound to hurt
U.S. consumers. "At the end of the day the president wants a deal with
China. This is what he is all about, making deals," PIMCO's Fels said.
SAUCER OR WOK?
If there is a recession on the horizon, both Fels and Wien said it would
likely be shallower than the great recession in 2008, in part because
excesses have not built up the way they did a decade ago when the
housing market overheated.
"The next recession will be not very deep because I don't see the big
imbalances in the real economy that we had in past recessions, but it
could be extended because we have less tools to fight it," Fels said,
adding "The last (recession) was V shaped. This one could be more saucer
or wok-shaped."
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Follow Reuters Summits on Twitter @Reuters_Summits
(Reporting by Svea Herbst-Bayliss and Megan Davies in New York; editing
by Diane Craft)
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